The specifics of Russian private banking

Although the private banking market is relatively young in Russia, local banks are now capable of competing with their Western colleagues in terms of complex and exotic investment vehicles

The Russian
private banking market first emerged in the mid-1990s, simultaneously with the
first private businesses. At the time, very few banks would foray into the
segment because the country's banking sector was still in its early days.

But that
situation has since changed, and now almost all the major Russian retail banks
run private banking operations. The segment is notoriously tight-lipped, making
it difficult to appraise its size.

Different
estimates put the private banking market's current value at $20 million to $25
billion, noting that the figure grows by some 25 percent every year. To qualify
for private banking services in Russia,
a client must own between $45,000 and $900,000.

There are
anywhere between 75,000 and 180,000 dollar millionaires in Russia, whose
combined assets could reach as high as $350 billion.

Russian
private banking is based on the classic Swiss model, but it also has its
regional specifics. Alexey Gusev, an expert with the Institute for Financial Planning,
said private banking services in Russia mainly come as bonuses for senior
managers of major corporate clients. Elsewhere in the world, banks mostly work
with those private clients who run their own business.

The average
Russian VIP client is aged between 55 and 60, and is a top manager at or the
owner of a business set up in the 1990s. Gusev says this category of clients
will grow particularly interested in inheritance issues in five years, including
how to sell or restructure their business and how to recall their offshore
assets.

"We
work with a number of leading galleries which offer works by renowned Russian
artists for sale. The bank itself may choose an interesting project, assess the
risks involved, and offer its clients to co-invest," said Tatyana Ivanova,
the director of the qualified investor department at International Financial Club.

Deposits
have become a very popular type of investment with VIP clients since the 2008
financial crisis, which discouraged well-to-do Russians from investing in the
once super-profitable stock market. VIP deposits currently account for 30
percent to 60 percent of all liabilities in banks, which offer private banking services.

The Russian
private banking sector has something to offer to sophisticated clients, too:
portfolio consultancy services. "What such an investment portfolio will
include depends on the client's preferences and investing experience,"
said Mikhail Gromov, the head of the private capital management department at Citi.
"As a rule, this service is chosen by qualified investors who choose to
work with sophisticated financial products."

One
significant trend of 2014, experts predict, may see major clients starting to leave
for large state-run banks following the revocation of several private banks' licenses
last year.